GE may add to reverser business It has an option on similar operation owned by Northrop

November 08, 1997|By Greg Schneider | Greg Schneider,SUN STAFF

General Electric Co., which earlier this week announced plans to buy the Middle River thrust reverser plant from Lockheed Martin Corp., has an option to buy a similar business owned by Northrop Grumman Corp.

Analysts said that if GE is signaling a serious push into the market, the once-desperate Middle River plant could be in for flush times.

GE "has the money and they have the reputation for being fairly aggressive in completing their objectives," said Brett Lambert, an aerospace analyst with DFI International.

The Fairfield, Conn.-based company is buying the historic Middle River factory as part of a complex deal in which Lockheed Martin will trade assets and cash for a huge chunk of its own stock.

Detailed in papers filed this week with the federal Securities and Exchange Commission, the transaction also gives GE the option to buy commercial thrust reverser operations at Northrop Grumman -- a company Lockheed Martin is in the midst of acquiring for more than $11 billion.

Northrop Grumman builds components for thrust reversers, which help a jet engine slow a plane on landing, at plants in Georgia and Florida as part of its $1 billion Commercial Aircraft Division. The thrust reverser portion of the work is fairly small, said spokeswoman Georgia Engle at division headquarters in Dallas.

One of its primary roles is as a subcontractor to Middle River on thrust reversers for GE's CF6 family of engines, which power widebody jets such as the Boeing 747.

Northrop Grumman also builds nacelles -- engine housings that include thrust reversers -- for the Gulfstream IV business jet, and does minor subcontracting on thrust reversers for another family of GE engines.

Because Northrop Grumman's business is relatively fragmented and spread out, it would be logical to expect GE to consolidate it at Middle River after completing that purchase later this year, experts said.

Officials at GE and Lockheed Martin declined to comment on the deal.

The agreement outlined in the SEC filings gives GE the option to buy the business for six months after Lockheed Martin completes its acquisition of Northrop Grumman, expected during the first quarter of next year.

GE would pay a price equal to 11.3 times the 1996 pretax earnings of Northrop Grumman's commercial thrust reverser operations. Lockheed Martin would be prohibited from marketing competing products for four years.

Some experts were surprised at GE's interest in thrust reversers. It sold that very business to Middle River in 1993, and recently has professed a desire to expand into aircraft maintenance and servicing, not manufacturing.

The question is whether the Northrop Grumman option merely represents a desire to "round out" the Middle River business, "or whether it is a toe to test the waters for moving more aggressively into the market," said analyst Lambert.

It is a market ripe for such a move, said Richard Aboulafia, an analyst with the Teal Group. Over half of the companies that make thrust reversers have less than 5 percent of the market, he said, "so it really behooves someone to start consolidating these various fragments and achieve a critical mass in terms of manufacturing capabilities and support."

Pub Date: 11/08/97

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